Relief rally underway

As the Straits Times Index struggles to hang on to its 200-day moving average, and as the 50- and 100-day moving averages ready themselves for a potential dead cross, current moves look very much like a rebound in a downtrend. As the end of the year draws near, however, the Capricorn Effect could make an appearance. This is the tendency of the market to make a low in December and rally in January towards Chinese New Year, peaking ahead of the holiday.

Although the index managed to rebound to 2,986, it is still considered to be at the neckline of the top formation, from which it broke down in early November. The break had indicated a downside of 2,860.

Against a background of a nervous market, some stocks are clearly doing better than others. And just as stocks with an exposure to China have been weak for much of 2012, they are now strengthening. CapitaLand ($3.37) has formed a very clear uptrend. CapitaRetail China Trust ($1.55) has bounced off a support and its 50- day moving average and looks set to continue its uptrend. Lower-liners such as Yanlord Land Group and Ying Li International have rebounded smartly off their respective supports. Of the two, Yanlord looks the stronger, but some speculative interest could drive Ying Li higher.

The US market is in a rally, but resistance appears at the 13,000 mark for the Dow Jones Industrial Average. The four-year Presidential Cycle works against a rising US market. Equities usually decline in the 12 months after a presidential election.

The Hang Seng Index (21,743) continues to maintain superior strength. The uptrend remains intact. The October high of 22,149 provides resistance. An earlier break above 21,000 indicated a target of 22,500, which could still be attained.

VIX APPROACHES LOW AS DOW REBOUNDS

The Volatility Index (15.31) is approaching the bottom of its range as it eased and equities rallied. Short-term indicators are also near the low end of their range. This index could rebound in early December. Resistance is at 19. The VIX is indirectly proportional to the Dow, that is, if it weakens, it is good for equities.

Short-term oversold pressures triggered a rally in the Dow (12,836). Resistance is at 13,000, the neckline of a top. Just before the US presidential election, the index broke a neckline support, a top formation and its 200-day moving average simultaneously, and these have not been regained with the recent rebound. The next support appears at the June low of 12,101.

The Standard & Poor’s 500 (1,391) has alsmanaged to rebound after testing a support at 1,350. The rebound, triggered by short-term oversold pressures, is likely to fade in the first week of December. Resistance appears around 1,440. When the decline resumes — the Presidential Cycle is against a sustained uptrend — the next support appears at 1,300.